• By Amy Castor and David Gerard

“In five years a number of banks will not be around because of blockchain technology.”

~ Joseph DePaolo, CEO, Signature Bank, 2018

All my banks gone

Crypto gets its wish — freedom from the corrupt and filthy fiat currency system! Silvergate and Signature, the two main crypto banks in the US, are gone.

After Silicon Valley Bank collapsed on Friday, March 10, US regulators worried about Signature’s concentration of large deposits that exceeded the FDIC insurance limit. Signature’s customers noticed too. They pulled billions of dollars in deposits from Signature later that same day. 

(Morning Brew has a good video explaining the process.) [Twitter, video]

New York regulators shut down Signature on Sunday, March 12. Shareholders are wiped out — but all depositors, even those with deposits above the FDIC $250,000 threshold, will be made whole. [Federal Reserve; NYDFS; FDIC]

The New York Department of Financial Services took control of Signature Bank pursuant to Section 606 of the New York Banking Law. Frances Coppola suspects the NYDFS acted under clauses (b), (c), and (d): the bank was conducting its business in an unauthorized or unsafe manner, it was in an unsound or unsafe condition to transact its business, and it could not with safety and expediency continue business. [FindLaw; Twitter]

Signature had 40 branches, total assets of $110.36 billion, and total deposits of $88.59 billion as of the end of 2022 — making this the third-largest bank collapse in US history.

Leading up to the announcement, President Biden met on Sunday afternoon with Treasury Secretary Janet Yellen, Federal Reserve Vice Chair Lael Brainard, and White House economist Jared Bernstein. Biden directed them to act, and the measures were announced just after 6 pm. [FT]

The closure came as a surprise even to the bank’s management — who only found out just before the public announcement. They were all fired. [Bloomberg] 

USDC can buy that for a dollar

After a weekend pause, Coinbase began allowing USDC redemptions again on Monday, and USDC has recovered its dollar peg. [Twitter]

Circle says no USDC reserves were held at Signature — but the company was dependent on Signature’s real-time payment rail, Signet. This left Circle scrambling at the last moment to set up new banking. Now Circle will be relying on BNY Mellon and a new partner: Cross River Bank. [Twitter, archive; Twitter, archive]

Cross River, based in Fort Lee, NJ, is another “crypto first” bank. We’re sure this will work out great. [Techcrunch, 2022]

Both Silvergate and Signature ran inter-exchange settlement systems specifically for crypto exchanges — SEN at Silvergate and Signet at Signature. These allowed exchanges to move money between each other at any time of day or night.

One guy told CoinDesk that Signet was still up and running in some capacity on Monday. Though Circle tried it and couldn’t use it. [CoinDesk]

Coinbase had about $240 million in corporate cash in Signature, but it expects to recover the funds fully. [Twitter, archive]

Paxos said it held $250 million of its stablecoin backing reserves at Silvergate, and that it “holds private deposit insurance well in excess of our cash balance and FDIC per-account limits.”[Twitter]

Freed from the lead weight of the legacy bankster system

With the closure of Silvergate and now Signature, crypto has been effectively shut out of the US banking system.

Exchanges, stablecoin issuers, and crypto hedge funds are all frantically hunting around for new banking — even looking outside the US. [Bloomberg]

Crypto companies are eyeing up other banks and payment processors, including Mercury, Brex, MVB, Western Alliance, Synapse, and Customers Bank — the last of which presently holds some of the reserves for the USDC and Paxos stablecoins. Or maybe JPMorgan Chase will take their calls. [The Block]

What happens next

These FDIC interventions are a warning cannonball shot to every other bank in the US. Straighten up your books and don’t specialize in bad customer bases — or the FDIC will swoop in, shoot you through the head, and sell your organs.

Crypto is one such customer base. Crypto customers were already strongly correlated with money laundering and crime — and now crypto correlates with hot money that flows in and out by billions a day. That’s a hazardous kind of customer for any bank to specialize in.

This is terrible news for crypto. Losing your banking rails is the worst thing that can happen to a crypto firm. Unless the crypto industry can find reliable US dollar payment rails that regulators will put up with, crypto in the US is dead as a financial product.

A few small banks will step in to pick up where Silvergate and Signature left off. But we greatly doubt the US is going to let these banks replace Silvergate and Signature.

Good thing crypto is uncensorable and unstoppable and doesn’t need banking.

More good news for bitcoin

It isn’t just a liquidity problem — Coinbase has removed all Binance USD trading pairs. The only place you can turn BUSD into dollars is now Paxos itself, BUSD’s issuer. This requires you to pass KYC and AML to US standards. Quite a lot of Binance traders can’t do that — so they’re buying BTC on Binance and moving that off instead. This makes number go up, so it’s definitely good news for bitcoin. [CoinDesk]

Paysafe, Binance’s UK payments processor, has cut them off, effective May 22 this year. “We have concluded that the UK regulatory environment in relation to crypto is too challenging to offer this service at this time and so this is a prudent decision on our part taken in an abundance of caution.” Ya don’t say. [Bloomberg]

HMRC in the UK has required Coinbase to provide information on all users who received a payout of more than £5,000 in the 2021 tax year. HMRC required the same of Coinbase in 2020. If you made money on Coinbase in the UK in the bubble, you may want to double-check if you need to correct your 2021–2022 tax return. These statist jackboots aren’t going to pay for themselves. [circumstances.run; Twitter, 2020]

The US Department of Justice is probing the collapse of Terra-Luna. [WSJ]

Kyle Davies from Three Arrows Capital has a very particular understanding of 3AC’s part in the crypto collapse. “If you think about, why are people angry? It has nothing to do with me actually. They’re angry that the market went down. In terms of us, we have no regulatory action anywhere, no lawsuits at all. There’s just nothing, so I know they’re clearly not mad at anything. They’re mad because the supercycle didn’t happen maybe, I don’t know. Something like that,” Davies said from his new desk in a non-extradition country. [CoinDesk]

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